Government-linked credit ratings downgraded

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Obama says U.S. is 'triple-A'

President Barack Obama today essentially dismissed the first-ever downgrade of the U.S. credit rating, reassuring investors and the public that the nation’s leaders need only show more “common sense and compromise” to tame a staggering accumulation of debt.

Seeking to demonstrate command in a volatile economic climate, Obama said he hoped the decision by Standard & Poor’s would at least give Congress a renewed sense of urgency to tackle debt problems. He said that must be done mainly by taking on the politically difficult issues of reforming taxes and entitlement programs in the coming months.

In his first public comments on the credit downgrade, which S&P announced Friday, Obama said Washington had the power to fix its own political dysfunction.

“Markets will rise and fall,” he said. “But this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple-A country.”

The agency also lowered the ratings for farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options.

All the downgrades were from AAA to AA+, reflecting the same downgrade S&P made of long-term U.S. government debt on Friday.

S&P said the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Their creditworthiness hinges on the U.S. government’s ability to pay its own creditors.

Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. Their downgrade might force anyone looking to buy a home to pay higher mortgage rates.

Freddie Mac declined to comment on the move. Fannie Mae had no immediate comment.

The downgrades “are as meaningless as the original action,” said Daniel Alpert, managing partner at the investment bank Westwood Capital LLC in New York. He said that investors are rushing into Treasurys, and that they will do the same for “anything backed by the full faith and credit” of the U.S. government. That includes debt issued by Fannie and Freddie and bank debt that was guaranteed by regulators to ease lending after the 2008 financial crisis.

The downgrades of Fannie and Freddie were expected widely. The government took control of the companies in September 2008, hoping to stabilize the housing industry. As the cost of bailing them out surpasses $150 billion, calls for dismantling the companies have increased.

Ten of the country’s 12 Federal Home Loan Banks also were downgraded from AAA to AA+. The banks of Chicago and Seattle had already been downgraded earlier to AA+.